Chpt 19 HW questions ACCT370

One difference between futures contracts and forward contracts is that futures contracts are standardized (quality, quantity, expiration, delivery terms, etc.) while forward contracts are not (they can be customized). Select one: ● True False

Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.

The following statements relate to derivatives. Which of the following is FALSE?a. Swaps may have cashflows as its underlying assets.b. Options allow the buying party to pay a price for a chance to buy or sell the underlying asset .c. Futures are forward commitments.d. Futures and forwards may be contingent claims wherein the contract can be cancelled upon the agreement of both parties.

The advantage of using a forward rate agreement FRA over a futures contract is: *       A. FRAs are highly standardized.       B. FRAs have only an initial margin and no ongoing maintenance margin.       C. the terms and conditions of a FRA can be negotiated.       D. FRAs have standardized maturities

Determine which of the following is NOT a distinguishing characteristic of futures contracts, relative to forward contracts. Question *       A. Contracts are settled daily, and marked-to-market.       B. Contracts are more liquid, as one can offset an obligation by taking the opposite position.       C. Contracts are more customized to suit the buyer’s needs.       D. Contracts are structured to minimize the effects of credit risk.       E. Contracts have price limits, beyond which trading may be temporarily halted.

Which of the following is NOT true O a. Futures contracts nearly always last longer than forward contracts O b. Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts. O c. Futures contracts are standardized; forward contracts are not. O d. Forward contracts usually have one specified delivery date; futures contract often have a range of delivery dates.

Which of the following is a reason why the default risk of a futures contract is assumed to be less than that of a forward contract? a. Forward contracts can be tailored, while future contracts are non-standardized. b. Forward contracts are classified as exotic derivatives.   c. Futures contracts are exchange-traded contracts, daily settlements are implemented by the clearing house. d. More flexibility as the buyer can decide whether or not to exercise the contract at maturity.   e. For futures contracts, all cash flows are required to be paid at one time on contract maturity.

If spot price falls below the exercise price, seller of a futures contract makes a ______ while buyer makes a _________ in the derivative market. a)gain, loss b)loss, gain c)gain, gain d)loss, gain

Futures contracts offer more flexible terms than a forward contract. True False

The advantage of over-the-counter products such as swaps or forwards contracts, relative to exchange-traded products such as options or futures, is: a. regulation. b. standardisation. c. flexibility. d. all of the given answers.

What are the key differences between future and forward contracts? a) direct contract for forwards b) clearing house for futures c) futures have less risk d) futures have a standard amount

6. Which one of the following statements is incorrect regarding the margining of exchange-traded futures contracts? (a) If an investor fails to deposit variation margin in a timely manner, the positions may be liquidated by the carrying broker. (b) Initial margin is the amount of money that must be deposited when a futures contract is opened. (c) A margin call will be issued if the investor's margin account balance drops below the mainte- nance level. (d) A margin call will be issued only if the investor's margin account becomes negative 2 6

Which is a key difference a manager should note in choosing between forward and futures contracts?a. Exchange trading makes forward contracts more liquid.b. Futures contracts carry standardized terms, while forward contracts can be tailored to meet specific needs.c. Futures contracts have greater default risk than forward contracts.d. Forward contracts require initial margin deposits and daily marking to market, while futures do not.

Futures contracts _________ traded on an organized exchange, and forward contracts traded on an organized exchange. are not; are O are not; are not O are; are not Oare; are

What are the assumptions that allow us to obtain the prices of futures and forward contracts in the same way? What happens if these assumptions are not satisfied?

Which of the following is true about derivatives? a. Value of derivative is derived from predetermined asset  b. The terms and conditions are flexible under derivative trading c. Derivative markets are suitable for low risk investors d. Risk on derivatives market are always low     no need for explaination ..please only give answer

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“The major difference between futures and options arises from the different obligations of  buyers and sellers “  Do you agree? Explain

? Which of the following is NOT true. An options contract is a contractual agreement between two parties. is based on the value of an underlying security. obliges the holder to exercise it at the expiration date. gives a trader the right to buy or sell the underlying security.